Up Over 50%, the SMH Semiconductor ETF Has a Chip On Its Shoulder

From computers to cars, from the way the semiconductor industry is going, it seems like everything will be run by a chip some day. ETF investors seeking growth opportunities may want to give the industry a closer look with funds like the VanEck Vectors Semiconductor ETF (SMH), which is up over 50% this year.

Disruptive technology is also driving the growth of the semiconductor industry. From artificial intelligence, machine learning, and 5G wireless technology, chips are in demand with more room for growth.

“There is still ample room for growth,” UBS analysts said in a Dec. 20 report.

As for the fund itself, SMH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the semiconductor sector. Such companies may include medium-capitalization companies and foreign companies that are listed on a U.S. exchange.

SMH is coming off a 2019 in which the fund gained 64%. With a 2020 pandemic, it might seem that SMH would scale back, but it’s still up over 50%.

Since retracing back to its pre-pandemic levels near the end of June/beginning of July, SMH has been in a steady uptrend. It has yet to breach overbought levels per a relative strength index (RSI) filter applied to its YTD chart.

SMH Chart

Can SMH Build on Its 2019 and 2020 Performances?

The fundamentals look good for SMH, particularly when you take into account the growth prospects for 2021 and beyond.

“The semiconductor industry is poised for faster growth in 2021 now that it has recovered from a cyclical downturn,” an Investor’s Business Daily article said. “World Semiconductor Trade Statistics predicts that chip sales will accelerate to 8.4% growth next year, reaching $469 billion in revenue. For 2020, it estimated that chip sales would rise 5.1% to $433 billion. That’s after semiconductor industry sales fell 12% to $412 billion in 2019.”

Semiconductor sales were able to parry the economic effects of the virus.

“Semiconductor industry sales returned to growth this year despite disruptions from the Covid-19 pandemic,” the article added. “Elsewhere, investment bank UBS forecasts that semiconductor industry revenue will rise 12% in 2021 to about $492 billion. UBS estimates that semiconductor revenue grew about 7% to $439 billion in 2020, bucking a challenging economic climate from the coronavirus pandemic.”

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